Fort Smith Board, staff discuss budget presentation options

The Fort Smith Board of Directors did not have time to talk about changing the city administrator’s hire-fire authority, but they did have a lively discussion about how the city presents its budget – specifically as to how the city handles a prior-year general fund balance with respect to future budgeting decisions.

Several Fort Smith Directors, with Director Keith Lau being the most vocal, have argued that the “cyclical” budgeting method now used by the city does not provide clear guidance on expenses and revenue. For example, the city budgeted in 2014 to end the year with a $3.425 million fund balance. The actual year-end balance was $6.745 million, more than $3.32 million above the budget. Lau said during the Tuesday (March 10) Board study session that some of this money could have been used to pay down fire and police pension (LOPFI) obligations, and would have resulted in a smoother budgeting process going into 2014.

“It changes the tone of what we do … if we know exactly how our resources are being allocated,” Lau said, advocating for consideration of a “structural” method of presenting city expenses and revenue.

Directors Mike Lorenz, Tracy Pennartz and Kevin Settle agreed with Lau. Settle noted during the discussion that a structural presentation would better allow the Board to be conservative with budgeting and control spending. Pennartz was more pointed with her assessment.

“I don’t think the current way of budgeting … is an accurate picture of where the city is at any point in time,” she said.

However, Mayor Sandy Sanders and City Administrator Ray Gosack defended the cyclical method of budgeting.

A memo from City Finance Director Kara Bushkuhl noted that advantages of a cyclical budget include familiarity, conservative revenue estimates, multi-year perspective provides better future financial planning, spending for actual needs, and avoids negative changes in service levels because of changes in available funding. Her note did say a disadvantage of this budgeting is the possibility of “spending above current year revenues.”

“Many of the larger cities in Arkansas as well as the Fort Smith Airport and Public Library currently use the cyclical budgeting method for 2015,” Bushkuhl noted in the memo in which she recommended staying with cyclical budgeting. “The current practice allows for the use of unspent revenues from the prior year and the staff relies on the use of these funds to help provide the public with services in the subsequent year.”

Gosack, along with Jennifer Humphrey, deputy director of finance for the city, said a structural budget penalizes frugal spenders. For example, if a department head uses only 95% of their budget, the next year’s budget may reflect that lower amount. Humphrey said the downside of a structural budget is that it creases a “use it or lose it mentality” with respect to spending.

“The policies we put in place are going to affect behavior,” Gosack said.

Pennartz pushed back against the “use or lose it” note.

“If the department heads have that mentality, they need to get rid of that,” she said.

Later in the discussion, Humphrey outlined a hybrid budgeting model that uses a cyclical framework but uses a structural approach to keep tabs on expenses and revenue in order to make adjustments. Her hybrid note drew surprise and some consternation from several directors.

“If we’re not doing that already, then we have another problem,” Settle interjected.

The Board and city staff agreed to continue the discussion.